Restructure of Deutsche Bank unsettles investors

Germany's leading bank said it was implementing a number of measures to improve long-term profitability and returns to shareholders

The bank's transformation got underway on Monday with some executives and staff in London, Tokyo and New York being handed their marching orders

The bank's shares closed down 5.4% in Frankfurt on Monday

FRANKFURT, Germany - Shares in Deutsche Bank have tumbled following the announcement of the bank's proposed restructure on the weekend.

Germany's leading bank said it was implementing a number of measures to improve long-term profitability and returns to shareholders.

The bank's transformation got underway on Monday with some executives and staff in London, Tokyo and New York being handed their marching orders.

The bank's restructuring announcement was made on Sunday when markets were closed. When markets opened on Monday, shareholders began to sell. The bank's shares closed down 5.4% in Frankfurt on Monday.

The proposed measures announced on Sunday include the following:

The exit of Global Equities and a significant reduction in Corporate and Investment Banking risk weighted assets

Deutsche Bank will exit its Equities Sales & Trading business, while retaining a focused equity capital markets operation. In addition, the bank plans to resize its Fixed Income operations in particular its Rates business and will accelerate the wind-down of its existing non-strategic portfolio. In aggregate, Deutsche Bank will reduce risk-weighted assets currently allocated to these businesses by approximately 40%.

The bank will create a new Capital Release Unit to manage the efficient wind-down of the assets related to business activities, which are being exited or reduced. These assets and businesses represented EUR 74 billion of risk-weighted assets and EUR 288 billion of leverage exposure, as of 31 December 2018.

These actions are designed to allow Deutsche Bank to focus on and invest in its core, market leading businesses of Corporate Banking, Financing, Foreign Exchange, Origination & Advisory, Private Banking, and Asset Management.

A significant restructuring of businesses and infrastructure

Deutsche Bank will implement a cost reduction program designed to reduce adjusted costs to EUR 17 billion in 2022 and is targeting a cost income ratio of 70% in that year.

To facilitate its restructuring, Deutsche Bank expects to take approximately EUR 3 billion of aggregate charges in the second quarter of 2019, of which approximately EUR 0.2 billion would impact Common Equity Tier 1 capital. These charges include a Deferred Tax Asset write-down of approximately EUR 2 billion and impairments of approximately EUR 0.9 billion. Additional restructuring charges are expected in the second half of 2019 and subsequent years. In aggregate, Deutsche Bank currently expects cumulative charges of EUR 7.4 billion by the end of 2022.

Managing the transformation through existing resources

Deutsche Bank management intends to fund its transformation from its existing resources without requiring additional capital. This reflects the bank's current strong capital position as well as management's confidence in the high quality and low risk nature of the assets, which it is exiting. In connection with these decisions, the Management Board intends to recommend no common equity dividend be paid for the financial years 2019 and 2020. The bank expects to have capacity for payments on additional tier 1 securities throughout the transformation phase.

Updated capital and leverage targets

The Management Board believes that the future business mix is consistent with a lower capital requirement. After consultation with the bank's regulators, the bank now intends to operate with a minimum CET1 ratio of 12.5% going forward. As a result of the significant deleveraging actions, the bank targets a fully-loaded leverage ratio of 4.5% by the end of 2020 rising to approximately 5% by 2022.

Preliminary Second Quarter Results

Including the charges related to the restructuring described above, Deutsche Bank expects to report a second quarter 2019 loss before income taxes of approximately EUR 500 million and a net loss of EUR 2.8 billion. Excluding these charges, Deutsche Bank expects to report second quarter 2019 income before income taxes of approximately EUR 400 million and net profit of EUR 120 million. Results reflect revenues of EUR 6.2 billion with noninterest expenses of EUR 5.6 billion and adjusted costs of EUR 5.35 billion.